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GASB 74/75 OPEB Accounting Changes


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A one-page comparison of GASB 43/45 and the new GASB 74/75 accounting rules for Other Post-Employment Benefits (OPEB)

Published in: Government & Nonprofit
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GASB 74/75 OPEB Accounting Changes

  1. 1. 12/28/2017 GASB 74/75 At-A-Glance Governmental Accounting Standards Board (GASB) statements 74 and 75 significantly reform Other Post- Employment Benefits (OPEB) financial reporting. Public employers should prepare now for the new accounting rules, which take effect in FY2017 (GASB 74 plan accounting) and FY2018 (GASB 75 employer accounting). Current GASB 43/45 Rules New GASB 74/75 Rules  The balance sheet liability is the Net OPEB Obligation: the cumulative difference between the Annual Required Contribution (ARC) and employer contributions.  The entire unfunded accrued liability goes on the face of the financial statements.  The discount rate is based on the plan assets’ expected investment return if the employer’s funding policy is to consistently contribute at least the ARC.  The discount rate is based on a projection of how long current irrevocable trust assets and future contributions will cover current plan members’ future benefit payments (cross-over calculation).  Unfunded plans and those with revocable OPEB trusts must use a municipal bond index rate as their discount rate.  Actuarial reports are required every 2 to 3 years, depending on employer size.  All employers require an actuarial report every 2 years. In the “off-year”, a simplified report will also be needed in order to reflect assumption and asset changes.  The ARC is often used as a de-facto funding policy even though it is not intended to be one.  Goodbye ARC! Funding and accounting are officially separated. Employers who pre-fund their OPEB will need to develop their own funding policies and Actuarially Determined Contribution (ADC). In addition to the changes above, GASB 74/75 will introduce many other reporting requirements, including:  Enhanced disclosures of historical contributions, funded status, and basis for assumptions  Disclosure of the Net OPEB Liability’s sensitivity to changes in medical trend and discount rate (+/- 1%)  Biennial actuarial reporting for all plans; including updated calculations in the “off-years” Employers should start preparing now by reviewing current OPEB promises and considering strategies to pre- fund these liabilities. We recommend the following process: Educate yourself and other stakeholders Model the effect on your plan Consider changes to plan and funding policy